European Commision Report More Upbeat For Spain´s Economy

The European Commission has released its Autumn 2020 Economic Forecast, which predicts further economic fallout from the coronavirus pandemic for this year but moving to growth for 2021 and 2022 for European Union members.

The report notes that the epidemiological situation means that growth projections are “subject to an extremely high degree of uncertainty and risks”.

However the report projects that the EU economy will contract by 7.4% in 2020 before recovering with growth of 4.1% in 2021 and 3% in 2022. Compared to the earlier Summer 2020 Economic Forecast, growth projections for both the euro area and the EU are slightly higher for 2020 and lower for 2021.

The forecast for Spain is for a contraction of 12.4% for 2020 in due to the additional burden of having 12% of the economy tourism dependent before rebounding by a higher than average 5.4% in 2021 and by 4.8% in 2022

The unemployment rate in the EU is forecast to rise from 6.7% in 2019 to 7.7% in 2020 and 8.6% in 2021, before declining to 8.0% in 2022 whereas Spain suffers from structurally high unemployment that in 2019 was more than double the EU average at 14.1% and which is expected to increase to 16.7% this year and a further rise to 17.8% in 2021 before falling back slightly to 17.3% in 2022.

The report predicts that although private consumption and investment in 2020 was hit hard by the pandemic, consumer spending is expected to bounce back and ” be supported by pent-up demand”  throughout 2021.

The Spanish inflation rate  is forecast to remain very low in the second half of 2020, dominated by the fall in energy prices and the appreciation of the euro. In 2021, headline inflation is expected to increase to 0.9%.

The still unsettled Brexit withdrawal agreement has added to the uncertanty but with an expected trade agreement between the EU and the UK before the end of the transition period on 31st December that “would also have a positive impact on the EU economy from 2021.”

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said although: “ EU economic output will not return to pre-pandemic levels by 2022″ the EU stimulus package, NextGenerationEU of which Spain is one of the principal beneficiaries with a 140 billion Euro package of grants and soft loans will ” provide massive support to worst-hit regions and sectors”

Spain’s deficit, which was 2.9% of GDP in 2019, is expected to balloon to 12.2% in 2020 “due both to the contraction of tax bases affecting revenues as well as to policy measures to counteract the impact of the pandemic,” reads the report. The deficit should slowly narrow to 9.6% in 2021 and 8.6% in 2022. Public debt is also expected to soar by nearly 25 percentage points to 120.3% of GDP in 2020, then increase slightly to 122% in 2021 and 123.9% in 2022.

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